Liffe in merger talks with Clearing House

LIFFE, THE London International Financial Futures and Options Exchange, is considering a merger with the London Clearing House, a back- office operation that settles contracts for a number of City-based markets, including the London Metal exchange, the International Petroleum Exchange and Tradepoint.

A merger would make sense by eliminating duplication of costs for City- based banks and trading houses which deal on both Liffe and the other London exchanges whose "paperwork" is handled by LCH.

Reducing costs is seen as essential if the London markets are to resist competition from hi-tech rivals on the continent especially Frankfurt which is threatening to take away a growing part of the international business of trading contracts in future interest rates, currencies and security indices.

LCH's chief executive, David Hardy, was quoted as saying that: "We are as keen as Liffe to see its short-term interest rates franchise remain extremely successful because that is important to us as a business."

Liffe was holding an open day for employees of member firms and their families yesterday, but a spokesman said that a merger with the LCH was being considered as part of an urgent review undertaken by the chief executive of Liffe, Brian Williamson.

Mr Williamson was one of the founder-members of Liffe back in 1982 and was brought back as executive chairman two months ago to rally Liffe in its battle to prevent its share of international business in futures and options being eroded by its Frankfurt-based rival, Deutsche Terminborse. In the past 12 months DTB has taken a stranglehold on trading in the instruments based on 10-year securities issued by the Bundesbank.

DTB recently merged with Soffex, the Swiss futures exchange, to form a new entity known as Eurex which has seized the initiative by switching to electronic screen-based trading, said to cost traders only a quarter of the traditional open-outcry trading systemwhich still operates in London. In July Eurex traded 18.8 million contracts, an increase of 71 per cent in 12 months, while Liffe traded 13.3 million, a fall of 27 per cent.

Liffe plans to move to a partly screen-based system next year, but it was forced to abandon plans to move into a pounds 44m purpose-built office in London's Spitalfields and to bring back Mr Williamson, who was also chairman of Gerrard, to conduct an urgent review of operations. That is about two- thirds complete, the Liffe spokesman said yesterday.